The Tax Cuts and Jobs Act has brought about many changes to exemptions and deductions that were once so advantageous to individual taxpayers. These modifications mean that individuals with more complex tax situations, such as two income providers or multiple sources of income, really need to evaluate their withholding and/or estimated tax payments for the 2018 filing year. These types of taxpayers may be more susceptible to being under-withheld or even over-withheld as a result of the major tax overhaul.
Taxpayers have grown accustomed to certain deductions and exemptions that may no longer be available to reduce their taxable income in 2018. Some of the major changes enacted by the Tax Cuts and Jobs Acts include:
- Increase in the Standard Deduction
- Elimination of Personal Exemptions
- Increase to the Child Tax Credit (including an increase to the eligibility threshold)
- Limitations and Eliminations of Certain Itemized Deductions
- Updated Tax Rates and Income Brackets
Each taxpayer’s situation is, of course, unique to his or her family’s financial and personal situation. It is always important to review withholding and estimated payment requirements with a tax advisor when there is a major change to an individual’s financial or personal circumstances (i.e. marriage, birth of a child, household income increase/decrease) or in this case, major tax reform.
Now is the time to make any adjustments necessary. Reviewing your financial situation early can help mitigate any potential late payment penalties and can provide for a more even disbursement of cash flows. For example, making the assessment and changes now, means less effect on each paycheck and a smaller likelihood for a large tax bill at the end of the year. It is important to communicate any changes in your withholding by providing a revised form W-4 to your HR department or payroll company.
Even if your withholding has historically been accurate, it is important to discuss with your tax advisor how the Tax Cuts and Jobs Act will affect your personal tax situation. Are you withholding enough? Or are you giving the government too much? Let HLB Gross Collins help you navigate the complexities of the new tax law and ensure the best tax outcome for you and your family in 2018.
- Candice M. Schell, CPA